Richard A. and Janice S. Adams - Page 7

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          are unaware of, any other section providing such an exemption               
          under these facts. Regardless of how the amount received from IBM           
          is characterized, it cannot escape the broad provisions of                  
          section 61.                                                                 
               Respondent also determined that petitioners are liable for             
          an accuracy-related penalty under section 6662(a) for a                     
          substantial underpayment of tax.  Section 6662(a) imposes a                 
          penalty in an amount equal to 20 percent of the portion of an               
          underpayment to which that section applies.  Section 6662(b)(2)             
          provides that the penalty shall apply to any substantial                    
          underpayment due in tax.2   There is a substantial underpayment             
          if the amount of the underpayment exceeds the greater of 10                 
          percent of the tax required to be shown on the return or $5,000.            
          Sec. 6662(d)(1)(A).  If, however, the taxpayer discloses the                
          relevant facts on the return and there is a reasonable basis for            
          the position, the penalty does not apply.  Sec.                             
          6662(d)(2)(B)(ii).  Petitioners attached Form 8275, Disclosure              
          Statement, and a copy of the Release to their return.  Those                
          documents reflect the facts of the payment.  In deciding whether            
          there was a reasonable basis for petitioners' position, we bear             
          in mind that petitioners' return was filed before the Supreme               

          2  Respondent's trial memorandum argues that the sec. 6662(a)               
          penalty was attributable to negligence.  The notice of deficiency           
          refers to an underpayment penalty.  Even if we were to consider             
          the issue of negligence, our conclusion would be the same for the           
          reasons subsequently stated herein.                                         

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